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Covanta Cuts Dividend & Withdraws View Amid Coronavirus Woes

Zacks Equity Research
·4 mins read

Covanta Holding Corporation CVA has decided to lower annual dividend rate and withdraw its 2020 guidance to preserve liquidity amid the unprecedented economic distress resulting from the outbreak of novel coronavirus.

Three of Covanta’s Waste to Energy facilities are currently permitted to accept regulated medical waste and the company has also started receiving COVID-19-infected material. Covanta facilities have specialized equipment to handle these materials, and incremental protocols and procedures to minimize contact. In addition, all the facilities of Covanta are currently operating with minimal disruption and providing essential services to clients.

Measures Taken by Covanta

The company has pro-actively decided to lower 2020 costs in the range of $15-$30 million by freezing discretionary spending, cutting down salary of top executives and directors at least for the next 12 weeks, as well as eliminating non-essential travel.

Covanta’s board of directors decided to lower annualized dividend payout to 32 cents per share, indicating approximately two-thirds reduction from the previous annual dividend payout of $1, thereby increasing cash retention for other uses by $90 million on an annual basis.

The company also decided to withdraw its 2020 guidance due to macroeconomic uncertainties created by the COVID-19 pandemic. During the fourth-quarter 2019 earnings release, the company provided its 2020 adjusted EBITDA and free cash flow guidance in the range of $415-$455 million and $100-$140 million, respectively.

It had $425 million in the revolving credit facility as of Mar 31, which will provide the company with ample liquidity for any potential stress during the COVID-19 pandemic period.

Fight Against COVID-19

The outbreak of novel coronavirus has impacted the health and financial well being of thousands of Americans. Per John Hopkins University, 601,472 people in the United States are currently infected, out of which 24,429 have lost their lives. Millions of Americans have filed for unemployment benefits. The U.S. Government has announced $2-trillion economic stimulus packages to counter the shock in the U.S. economy that resulted from the outbreak of this virus. The financial incentives will provide some relief to millions of Americans who have experienced job loss due to COVID-19.

One of the best possible ways to fight COVID-19 is social distancing and staying at homes. Governments across the globe have announced various degrees of lockdown to ensure social distancing. As the vast majority of the world’s population is staying at homes, it has helped to flatten the exponential curve of the pandemic. Maintaining personal hygiene and washing hands with soap at regular intervals will assist people to keep the virus at bay. The U.S. Environmental Protection Agency recommends Americans to continue using and drinking tap water as it is not contaminated with COVID-19 virus. Water utilities like American Water Works AWK and California Water Service Group CWT have announced 24x7 supply of water to customers even in the event of non-payment of dues.

Zacks Rank & Another Key Pick

The stock currently carries a Zacks Rank #2 (Buy). Another top-ranked stock from the same sector is Murphy USA Inc. MUSA, having a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Murphy USA delivered average positive earnings surprise of 30.5% in the last four quarters and the Zacks Consensus Estimate for 2020 has moved up nearly 4% in the past 60 days to $6 per share.

Price Performance

Shares of Covanta have plunged 46.9% in the past 12 months compared with the industry’s 21% decline.

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